Recent genome-wide scans for colorectal cancer (CRC) have revealed the SMAD7 (mothers against decapentaplegic homolog 7) gene as a locus associated with a modest, but highly significant increase in CRC risk. To identify the causal basis of the association between 18q21 variation and CRC, we resequenced the 17-kb region of linkage disequilibrium and evaluated all variants in 2532 CRC cases and 2607 controls. A novel C to G single nucleotide polymorphism (SNP) at 44,703,563 bp was maximally associated with CRC risk (P = 5.98 × 10⁻⁷; ≥1.5-fold more likely to be causal than other variants). Using transgenic assays in Xenopus laevis as a functional model, we demonstrate that the G risk allele leads to reduced reporter gene expression in the colorectum (P = 5.4 × 10⁻³). Electrophoretic mobility shift assays provided evidence for the role of Novel 1 in transcription factor binding. We propose that the novel SNP we have identified is the functional change leading to CRC predisposition through differential SMAD7 expression and, hence, aberrant TGF-beta signaling.